US backs Sri Lanka’s debt restructuring effort

• “The United States, as a creditor, stands ready to participate in a restructuring of Sri Lanka’s debt”– US Treasury Secy. Janet Yellen
• SL last week entered into a staff-level agreement with IMF for a 48-month, US $ 2.9bn EFF
• Fund disbursement is however contingent upon SL securing debt relief from its official and private creditors 

The United States will support Sri Lanka’s debt restructuring effort by extending financing assurances in consistent with the Paris Club principles, President Ranil Wickremesinghe’s media office said.

The President’s Media Division yesterday tweeted, “The US will support restructuring Sri Lanka’s debt; extend financing assurances consistent with Paris Club principles & engage with @WorldBank, @ADB_HQ & US agencies – US Treasury Secretary @SecYellen.”

“The United States, as a creditor, stands ready to participate in a restructuring of Sri Lanka’s debt,” US Treasury Secretary Janel Yellen was quoted as saying by Reuters, yesterday. 

Sri Lanka last week entered into a staff-level agreement with the International Monetary Fund (IMF) for a 48-month, US $ 2.9 billion Extended Fund Facility (EFF).

The bailout package is subject to the approval of the IMF Executive Board and the island nation striking a deal with its creditors to restore its debt sustainability, most likely by way of haircuts and debt deferments. 

Some major economic reforms have also been identified as so-called “prior actions” for Sri Lanka to set in motion to stabilise its economy before any disbursement of the 
IMF funds. 

Despite the US assurance, much of Sri Lanka’s debt remains with creditors outside of the Paris Club. 

For example, out of the total bilateral debt of Sri Lanka, the largest portion of 44 percent is held by China, which is not a full member of the Paris Club. 

India, which is also not a full member but only an observer state of the Paris Club since 2019, is the third largest bilateral creditor to Sri Lanka, accounting for 10 percent of the total bilateral debt.

However, India has already expressed its willingness to join in and support Sri Lanka’s debt restructuring efforts. But China’s position as of now remains elusive.  

The Paris Club members are Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, Norway, Russia, South Korea, Spain, Sweden, Switzerland, the United Kingdom and United States. 

After announcing a debt repayment freeze on its foreign debt in mid-April amid razor thin foreign reserves, Sri Lanka for the first time in its history defaulted on its debt in May.